Heathcare Payments and Incentives

1. Heathcare Payments and Incentives Stephen M. Shortell, PhD Professor and Dean School of Public Health UC Berkeley

2. PAYMENT ALTERNATIVES • Fee-For-Service • Capitation • Bundled Payment/Episode-of-Care Based Payment • Pay for Performance • Care Coordination Bonuses MECHANISMS TO RESPOND • Accountable Care Organizations (ACOs) • Patient Centered Medical Homes (PCMH)

3. Fee-for-Service • Each health service is priced and charged independently, without necessitating coordination between services • Most common method of paying for healthcare • May lead to overuse of services, particularly those in specialty care or in services that use technology whose cost is decreasing • One possible improvement strategy is to recalculate FFS rates to reduce overuse – but providers would still be paid for doing more in terms of quantity rather than of quality Mechanic and Altman 2009

4. Capitation • Healthcare provider receives a lump sum to provide all care for one individual, often prospectively • Challenges with this strategy: • Incentive to provide fewer services, which are possibly needed • Risk adjustment for individual needs may not occur RAND 2009

5. Bundled Payments • Also known as ‘case rates’ or ‘episode-based payments’ • Single payment for all services related to a specific treatment or a given condition • Payment may include multiple providers, services, settings, and time periods • Most popular use so far has been with CABG (coronary artery bypass graft) surgeries

6. Bundled Payments - continued • The provider assumes risk for cost of care and the cost of any preventable complications • Hospitals/providers have an incentive to reduce unnecessary care • Medicare is now considering expanding to End-stage renal disease (ESRD) and common diagnosis related groups (DRGs) RAND Corp. 2009

7. Bundled Payments - Evidence • Medicare Participation Heart Bypass Center demonstration in 1990s • A single negotiated, risk-adjusted amount was paid for inpatient bypass patients • Savings mostly were achieved from nursing, pharmacy, and laboratory services Liu, Subramanian and Cromwell 2007

8. Bundled Payments - Evidence • ProvenCare CABG surgery program at the Geisinger Health System. • One price covers all care related to surgery, risk-adjusted based on historical evidence of complications • Covered readmits within 72 hours and related services for following 90 days Casale et al 2007

9. Bundled Payments - Evidence • Geisinger CABG program also includes 40 process measures that are based on best practices, and a supportive IT system • Additional component is patient engagement in decision-making • Clinical outcomes have improved; length of stay is down by 16% and mean costs are down by 5.2% Casale et al 2007

10. Bundled Payments - Evidence • Other projects: • Medicare Cataract Alternative Payment demonstration – low study participation rates but some improvement in efficiency noted • Texas Heart Institute pricing package for cardiovascular surgery – sold via contracts to employers and health plans (RAND 2009) • Two year pilot on arthroscopic surgery coverage by bundling all related costs for two years (Johnson and Becker 1994)

11. Bundled Payments - Evidence • Other projects: • Prometheus Payment initiative • Developing ‘evidence-informed case rates’ • Working groups for cancer, cardiac care, depression, diabetes Type 2, knee and hip replacements, and chronic conditions (De Brantes and Camillus 2007) • Advantages of bundling – extends coverage of episodic care beyond DRGs • Disadvantage – bundling could create incentive to increase hospital admissions or avoid complicated patients (Mechanic and Altman 2009)

12. Bundled Payments - Medicare • In 2007 the Medicare Payment Advisory Commission created the following recommendations regarding bundling: • CMS should share data on payments per episode by provider for comparison purposes • Payment should be reduced for hospitals with high readmission rates for certain conditions, and hospitals should be able to reward physicians who contribute to Medicare savings • More pilot programs are needed Hackbarth et al 2008

13. Pay-for-Performance (P4P) • Providers are rewarded financially for set performance on specific medical indicators or goals • P4P programs are widely spread and use a variety of incentives and may target individual or group providers • Process or outcome measures may be used • Financial incentives may be coupled with nonfinancial support (O’Kane 2007)

14. Pay-for-Performance (P4P) • Challenges: • Difficult to know what performance measures to use – HEDIS, mortality or morbidity rates • Focused on a subset of performance • Good for rewarding underused services but does not reduce overused services • May not lead to improved integration and coordination without strategies such as IT adoption and care management • Could be part of a ‘blended’ model – combined with a global, capitation approach or with a bundled, episodic care approach Mechanic and Altman 2009

15. Pay-for-Performance - Evidence • Little formal evaluation and many methodological problems in existing studies • Most rigorous study of the CMS Premier Hospital Quality Initiative Demonstration showed modest improvement in treatment versus control groups (Mehrota et al 2009) • No clear consensus on what should be rewarded – physicians or groups, levels of performance, improvements rates • However, it is recommended that rather than rewarding only top performers, P4P target high-value care for specific patient groups or services (Rosenthal and Dudley 2007)

16. Pay-for-Performance - Evidence • Study of demonstration project at Independent Health in New York state • Individual physicians received bonuses for meeting diabetes target measures, as well as registry assistance • Significant improvement was achieved in affected groups on blood pressure and lipids (Beaulieu and Horrigan 2005)

17. An accountable care organization has only two jobs  • To continuously improve the value of the care it delivers To provide the evidence (i.e. the data) on the above

26. Patient-Centered Medical Home • Emphasis on continuity and coordination of care • Care is planned with families, and individuals have increased access • Clinic redesign includes enhanced IT use, quality feedback to providers, and decision support tools • Reimbursement goes beyond FFS and adds a per member/per month amount to cover costs of coordination and other resources • Evidence for Medical Homes is based on the evidence in support of chronic care management (CCM) Dorr 2008

27. Patient-Centered Medical Home • Review of medical home literature and the impact of medical home use on effectiveness, cost and quality is all positive, both internationally and within-nations • Four features of the medical home are necessary for success: 1) A source of first-contact care, 2) A person-focus on care over time, 3) Comprehensiveness of care, and 4) Coordination when a patient is sent elsewhere Starfield and Shi 2004

28. Table from Rittenhouse et al 2008

29. Table from Rittenhouse et al 2008

30. Table from Mechanic & Altman 2009

31. References (Page 1 of 2) • Casale AS, Paulus RA, Selna MJ, et al. "ProvenCareSM": a provider-driven pay-for-performance program for acute episodic cardiac surgical care. Ann Surg. Oct 2007;246(4):613-621; discussion 621-613. • Choe HM, Bernstein SJ, Cooke D, Stutz D, Standiford C. Using a Multidisciplinary Team and Clinical Redesign to Improve Blood Pressure Control in Patients With Diabetes. Quality Management in Healthcare. 2008;17(3):227-233 210.1097/1001.QMH.0000326727.0000301203.0000326799. • Dorr DA. Oregon Health Sciences University.Medical Informatics and Internal Medicine.Presentation: Overview of the Medical Home. Sept 2008. 2008. • Edmonds C, Hallman GL. CardioVascular Care Providers. A pioneer in bundled services, shared risk, and single payment. Tex Heart Inst J. 1995;22(1):72-76. • Hackbarth G, Reischauer R, Mutti A. Collective accountability for medical care--toward bundled Medicare payments. N Engl J Med. Jul 3 2008;359(1):3-5. • Johnson LL, Becker RL. An alternative health-care reimbursement system--application of arthroscopy and financial warranty: results of a 2-year pilot study. Arthroscopy. Aug 1994;10(4):462-470; discussion 471-462. • Liu CF, Subramanian S, Cromwell J. Impact of global bundled payments on hospital costs of coronary artery bypass grafting. J Health Care Finance. Summer 2001;27(4):39-54.

32. References ( Page 2 of 2) • Mechanic RE, Altman SH. Payment reform options: episode payment is a good place to start. Health Aff (Millwood). Mar-Apr 2009;28(2):w262-271. • Mehrotra A, Damberg CL, Sorbero ME, Teleki SS. Pay for performance in the hospital setting: what is the state of the evidence? Am J Med Qual. Jan-Feb 2009;24(1):19-28. • O'Kane ME. Performance-based measures: the early results are in. J Manag Care Pharm. Mar 2007;13(2 Suppl B):S3-6. • RAND Corp. Overview of bundled payment options. 2009. Available online: • http://www.randcompare.org/options/mechanism/bundled_payment • Accessed August 2, 2009 • Rittenhouse DR, Casalino LP, Gillies RR, Shortell SM, Lau B. Measuring The Medical Home Infrastructure In Large Medical Groups. Health Aff. September 1, 2008 2008;27(5):1246-1258. • Rittenhouse DR, Shortell SM. The Patient-Centered Medical Home: Will It Stand the Test of Health Reform? JAMA. May 20, 2009 2009;301(19):2038-2040. • Rosenthal MB, Dudley RA. Pay-for-performance: will the latest payment trend improve care? JAMA. Feb 21 2007;297(7):740-744. • Starfield B, Shi L. The Medical Home, Access to Care, and Insurance: A Review of Evidence. Pediatrics. May 1, 2004 2004;113(5):1493-1498.